Report: Industrial Manufacturing M&A Remains At Near-Stop

Mergers and acquisitions in the global industrial manufacturing industry showed little improvement during first quarter 2009, according to the PricewaterhouseCoopers LLP report Assembling Value: First-quarter 2009 Mergers and Acquisitions Analysis.
 
The pace of deal activity (measured by the number of deals with a disclosed value of at least $50 million) remained at a near stop during the first quarter, with only 13 deal announcements, a fraction of the 43 deals announced in first quarter 2008; 45 in first quarter 2007; and 38 in first quarter 2006. The first quarter's deal activity did register a slight improvement, however, over the 11 deals announced in fourth quarter 2008.
 
Total deal value declined 80% from the same time last year, with only $1.6 billion announced in first quarter 2009, down from $8 billion announced in first quarter 2008. With the absence of large deal announcements, average deal values also suffered, averaging only $126 million in first quarter 2009 compared with $185 million in first quarter 2008 and $273 million in first quarter 2007.
 
The tumultuous conditions of 2008 have continued into 2009, as a challenging global macroeconomic environment and tightened credit markets contribute to plummeting demand for industrial manufacturing assets, said Paul McCarthy, U.S. industrial manufacturing transaction services strategy leader at PricewaterhouseCoopers. "Deal values will continue to decline, as the global market adjusts asset prices downward to accommodate weak corporate profits, amid an increased focus on cash retention in this uncertain economy."
 
Financial buyers accounted for only three deals (23%) in first quarter 2009, constrained by a lack of available credit and a slowing influx of capital. Financial buyers accounted for 14 deals in first quarter 2007 and nine in first quarter 2008. While this declining M&A demand has applied downward pressure on market valuations, a need to conserve cash, weak global demand, and tight credit have discouraged strategic buyers from deal activity as well. In first quarter 2009, strategic buyers accounted for 10 deals, compared with 34 deals in first quarter 2008.
 
Given financial investors' pullback and looming uncertainty about the global economy, large deals (defined as those with a disclosed value of at least $1 billion) were absent in first quarter 2009 with zero deal announcements. This is a dramatic decline from the boom period seen in
2006 (23 large deals) and 2007 (17 large deals); there were five large deals announced in 2008.
 
Deal activity shifted to Asia and Oceania in the first quarter, as 44% of announced deals were for targets in that region, compared with 36% in first quarter 2008. Moreover, 41% of buyers were from Asia and Oceania, compared with 26% in first quarter 2008. Unlike previous years, no deals were announced for targets in the UK and Eurozone region during first quarter 2009, a substantial drop from the 29% average share of deals for this region during the past three years. More than one-third (38%) of first quarter deal targets were in North America.
 
Cross-border deals for U.S. targets were absent in first quarter 2009 - consistent with fourth quarter 2008 -  but a notable decline from three deals announced during first quarter 2008 and a total of 10 deals (27% of all deals) in 2008. Total value for deals with U.S. targets and/or acquirers during first quarter 2009 was $0.6 billion versus $2.5 billion in first quarter 2008, a steep 76% decline.
 
The ongoing consolidation of the Chinese manufacturing industry, coupled with China's relatively healthy credit market, continues to make it a favorable region for deal-making, accounting for three out of the four deals announced for BRIC (Brazil, Russia, India, and China) targets in first quarter 2009. Brazil accounted for the remaining deal.
 
More than half (51%) of the deals announced during the first quarter were in the industrial machinery category.
 
For information and to access the full report, visit: www.pwc.com/manufacturing.